I'm going to be a bit off topic - trying to clarify the original incident rather than the copyright handover demand (I don't see why Penguin would possibly agree to that…) (Also, apparently people think of India and Pakistan, Hinduism and Islam all as a jumble "somewhere over there", so perhaps this will help in that respect too… )
So… It would be simple to just blame religious fundamentalists, but this is a rather more complex situation, with faults on both sides.
The book in question was published in 2009 and rather immediately caused significant opposition in India from Hindu traditionalists (fundamentalism denotes a rather higher level of dogmatism than apparent in this incident), including a petition to get it banned and a lawsuit, though as far as I know there was no violence or death threats or anything of that sort. The lawsuit had been working its way through the court, but Penguin recently opted for an out-of-court settlement and withdrew the book. The petition and lawsuit pointed out several factual errors in the book, as well as several claims of cultural insensitivity and "offending religious sentiments". Unfortunately, there is a law in India against statements or acts that can cause such offense. If you want, you can read one of the original petitions here. There are certainly also mischaracterization of Hinduism in the petition, as well as several instances of naive literal faith in historical descriptions.
On the other hand, Wendy Doniger and many - though not all - other Indic religions scholars in the Western world have been engaging in what one could only call academic malpractice. Apart from lazy errors such as mistranslations (often from not having knowledge of the languages in question!), cherry-picking and rearranging texts to suite desired conclusions, their work has repeatedly exhibited strong cultural imperialism, eurocentrism, and presentism; baseless speculation presented as serious analysis; and, heaven help us - use of Freudian psychoanalysis to interpret historical texts, religious icons, and personalities.
How this is presented seriously as premier academic scholarship I have no idea. If these people tried to pull something similar with Hebrew, Greek, or Latin texts, I'm sure they would be laughed out of the room! If I were Penguin, I would have withdrawn the book out of sheer embarrassment over the questionable "scholarship", regardless of any legal or social pressures.
An understanding of classical Indian society in the 1st millennium CE would be a very useful asset for the modern world. Before the influence of the zealous Islamic invaders and then Puritanical British rulers, India was a far less authoritarian, dogmatic, and repressive society. These are the people that brought us the Kama Sutra, Atheism/Materialism as a serious alternative to theistic philosophies, Khajuraho temples (look it up, NSFW!), in addition to the mathematical zero, plastic surgery, astronomy and many other intellectual and cultural achievements.
Such a society, though indubitably with its own flaws, could serve as one of the positive reference points if we want to construct a more ethical and egalitarian world. It behooves us to try to develop the best possible fact-based understanding of this society through academic inquiry. Unfortunately, Doniger's book, and others by researchers like her (many trained by her) fall laughably short of such objective scholarship.
I will leave you with link to an article by someone more qualified to comment on this matter than me -
Oh, But You Do Get It Wrong! - "Wendy Doniger (1) falsely and unfairly brands all of her critics as right-wing Hindutva fundamentalists, and (2) grossly mischaracterizes (and misquotes) the text of the Valmiki Ramayana" - Oct 2009, right after this book was published.
(There are more illuminating articles on this topic, but being a new member, apparently I can only post two links.)